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Tag: International Corporate Taxation

Congress is out this week for Thanksgiving but congressional staff continue to work on tax reform legislation. Negotiation also are underway over sticking points between the House and Senate versions of the bill. Congress will reconvene during the week of November 27, when the Finance Committee tax reform bill is expected to be considered on the Senate floor. The tax reform proposal approved by the Finance Committee differ in key aspects from the House-approved bill. Once the House and Senate have approved tax reform bills, both chambers must reconcile differences between the two bills and then vote to pass a final bill which would then be signed into law by President Trump.

The enclosed summary outlines the comparison of the key elements of the House “Tax Cuts and Jobs Act’ (HR 1) and the Senate Finance Committee version. The proposals differ in key elements but the differences do not seem to be irreconcilable following latest talks in Washington DC.

House of Representatives

The House on November 16 voted 227 to 205 to pass the Tax Cuts and Jobs Act’ (HR 1), with 13 Republicans voting against the legislation. The bill proposes to lower business and individual tax rates, modernize US international rules, and simplify the tax law, with significant impact on numerous sectors of the economy. For more details on the House action and next steps in the tax reform process see our November 16 Tax Insight.

Senate Finance Committee

The Senate Finance Committee late on November 16 approved by a vote of 14 to 12 a Senate version of tax reform legislative. For more on the Finance Committee approved bill, see your November 17 Tax Insight.

The Comparison

General business tax reform proposals

International business tax reform proposals

Individual tax reform proposals

What’s next?

With House passage complete and Senate floor discussion coming up, the US tax reform makes strong headway. Despite the fact that Congress is on Thanksgiving recess, crucial negotiations and legislative write up are ongoing in the light of upcoming reconciliation process to find middle ground and compromise. Some provisions may still get smoothen out in the reconciliation and negotiation process. This conference is expected to be easier than the healthcare bill as the bills are dramatically similar. If the process continues without delay, a feasible timeline may be for House and Senate to resolve differences and vote to pass a final bill by end of November or early in December 2017 which would then be signed into law by President Trump still in December 2017 or early 2018. The question becomes the calendar with the upcoming Alabama Senator election and the holidays.

What you should do? Follow the debate on the final US tax proposal closely, know your facts and be prepared for change at some point. Stay tuned for the next blogs on US Tax Reform to follow shortly with more specific details for the impact on Swiss groups / US inbounds or what you need to consider for financial reporting. Also, stay tuned for our EMEA Webcast: “How US Tax Reform impacts European Multinationals” next Monday (27 November) from 4:00 pm until 5:00 pm (CET time).

The US House of Representatives on November 16 voted 227 to 205 to pass the ‘Tax Cuts and Jobs Act’ (HR 1). The bill proposes to lower business and individual tax rates, modernize US international tax rules, and simplify the tax law, with significant impacts on numerous sectors of the economy. Meanwhile, the Senate Finance Committee is continuing to consider a version of tax reform based on legislation proposed by Finance Chairman Orrin Hatch (R-UT). The tax reform proposals being considered by the Finance Committee differ in key aspects from the House-approved bill. The Senate Finance Committee on November 16 approved tax reform legislation (the Tax Cuts and Jobs Act), by a 14:12 vote, after adopting a manager’s amendment offered by Senate Finance Committee Chairman Orrin Hatch (R-UT).

The legislation now moves to the Senate floor, where the full Senate is expected to debate and consider amendments to the Finance Committee-approved tax reform bill during the week of November 27, following Congress’ Thanksgiving holiday recess week. Once the Senate has approved its tax reform bill, the two chambers must reconcile differences between the two bills and then vote to pass a final bill in identical form before tax reform legislation can be signed into law by President Trump. HR 1 would lower the US corporate tax rate from 35 percent to 20 percent for tax years beginning after 2017. In addition, there are several complex base broadening measures built into the reform package.

President Trump and Republican Congressional leaders hope to enact the legislation before the end of 2017.

The takeaway and impact on Swiss corporations

Stakeholders should remain engaged in the legislative process as Congress works to enact tax reform intended to boost US competitiveness and productivity through lower business tax rates, a modernized international tax system, and incentives to invest in the United States.

If the US tax reform, is passed, it will have an impact on Swiss multinationals and how they will structure their business going forward.

Discussions continue

The US tax reform discussions continue to develop and shape. The Senate Finance Committee Chairman Orrin Hatch on November 9, 2017 released a Senate version of the ‘Tax Cuts and Jobs Act.’ The Senate tax reform proposals would lower business and individual tax rates, modernize US international tax rules, and simplify the tax law, but differ in key aspects from the House Ways and Means Committee approved tax reform bill. The Senate Finance Committee will begin its process of adjustments on Monday, November 13.

There are several key areas which are in particular relevant for non-US based multinational companies with respect to the Finance Committee’s proposed tax reform legislation:

Corporate Tax Rate

A 20% percent corporate tax rate beginning after 2018 which is a year longer than the House bill that has the 20% rate effective for years beginning after 2017.

Interest deduction limitations

Similar to the House bill, the deduction for interest expense would be limited, but with some key differences. The Senate bill generally would limit the deduction for business interest to the sum of business interest income plus 30 % of the ‘adjusted taxable income’ of the taxpayer for the taxable year. The limitation would not apply to any taxpayer that meets a $15 million gross receipts test. Similar to the House bill, the Senate bill includes an additional interest limitation which would deny a deduction for certain interest expense of US companies that are members of worldwide affiliated groups with ‘excess’ domestic indebtedness. Companies subject to both interest limitation provisions are denied the greater of the two interest limitations.

The second interest limitation compares US leverage to worldwide leverage and disallows a current deduction to the extent the US leverage exceeds 110 percent of the debt the US group would have had if the US leverage was based on the worldwide debt to equity ratio.

The amount of any interest not allowed for a deduction for any taxable year may be carried forward indefinitely, unlike the House bill where there is a 5 year limit.

Both changes would be effective for tax years beginning after 2017.

Base erosion and anti-abuse tax

The Senate base erosion and anti-abuse tax has the same policy objectives of the House excise tax but addresses the issue differently. Companies subject to this provision would pay the excess of tax computed at a 10-percent rate on an expanded definition of taxable income over their regular tax liability reduced by certain credits. The tax would apply to companies (excluding REITS, regulated investment companies or S Corporations) with “base erosion tax benefits” of more than four percent of total deductions and has average annual gross receipts of at least $500 million over the three preceding years. The tax is imposed on the difference between 10 percent of taxable income, grossed up by deductible payments to foreign related persons and taxable income, reduced by certain excess credits. The gross up is reduced proportionately to the extent the deductible payments taken into account have been subject to gross basis tax under the US withholding regime, as reduced under an applicable treaty.

Effective for payments made after December 31, 2017; note, the excise tax in the House version is proposed to be effective for tax years beginning after December 31, 2018.

The House Ways and Means Committee on November 9, 2017 approved by a party-line vote of 24 to 16 the ‘Tax Cuts and Jobs Act of 2017’ bill. Some modifications from the original draft bill released on November 7th that are especially relevant for non-US companies include:

Base erosion rules

Chairman Brady’s November 6 and November 9 amendments modify the bill’s international base erosion rules in several respects. In the reported bill as amended, the provision taxing affiliated payments was amended to provide for a foreign tax credit, to exclude acquisitions of property priced on a public exchange, to compute a foreign affiliate’s profit based on foreign profit margins instead of global profit margins, and to coordinate with existing withholding rules. Under this provision, the foreign tax credit is 80 percent of foreign taxes. (A provision in the November 6 amendment that permitted a routine return to be earned on deemed expenses was subsequently removed by the November 9 amendment, with an increase in the foreign tax credit from 50 percent to 80 percent.)

Repatriation toll tax

The House bill’s mandatory repatriation toll charge was amended to increase the proposed effective tax rates for deemed repatriated earnings to 14 percent on earnings held in liquid assets and seven percent on earnings held in illiquid assets, up from 12 percent and five percent respectively in the bill as introduced.

Legislative Proposal on broadened dividend withholding tax exemption

A formal legislative proposal with respect to amendments to the Dutch Dividend Withholding Tax Act has been published on Dutch Budget Day in September. The legislative proposal introduces a broadened unilateral dividend withholding tax exemption in conjunction with anti-abuse rules of Action 6 of the OECD Base Erosion and Profit Shifting (“BEPS”) Project. It seeks to align the dividend withholding tax treatment of holding cooperatives and Dutch entities with a capital divided into shares (e.g. BV/NV). These rules are expected to be effective as from January 1, 2018.

Dividend Withholding Tax planned to be abolished

In the coalition agreement, that was published October 10, 2017 it was further announced that the Dividend Withholding Tax will be abolished except for specific cases of abuse. A new legislative proposal is expected to be brought forward in 2018 or 2019 and to become effective as of January 1, 2020.

In case Dutch entities are part of your group’s structure, the withholding tax treatment of dividends flowing through the Netherlands might change as of 2018.

For more detailed information on the various aspects of the legislative proposal, please refer to the attachment.

Setting up an entity through which an active business is conducted, or an interest other entities is held, is well understood and common. However, the world keeps on changing. As countries scramble to protect and enlarge their tax revenue base they are taking a fresh look at taxing entities, especially foreign ones. Much turns on the question of where an entity has its true substance.

The tax residence of an entity does not necessarily match the place where it is formally registered or incorporated. Some countries may claim that the entity is tax resident in their country if it is centrally managed and controlled from there. At issue is the highest level of decision making of the entity and not, for example, mere operational control. Factors to be considered include identifying the effective and economic centre of the entity’s existence and the place where the essential decisions of the entity are taken.

Under the 4th anti-money laundering directive of the European Union, all European countries are obliged to introduce legislation that will create a register of the ultimate beneficial owners (UBOs) of structures. Who qualifies as a UBO? What information will be collected? Who will have access to the data?

The 4th Anti-Money Laundering directive entered into force on 26 June 2017. Each member state should by now have transposed the directive into their national law. What follows is a discussion of the provisions of the directive itself at EU level.

On Thursday, 2 November 2017, the US House of Representatives released a draft bill on US corporate tax reform. There are many significant proposals in the draft bill that would have an impact on investment into the US. While it’s the first official stage of the legislative process, and there could be several changes to the final legislation if enacted, its significance shouldn’t be underestimated. There is a very active dialogue ongoing with amendments and positions since its release already. For further details, please read the attached newsletter.

We do expect a draft bill also to be released by the Senate next week. This bill will be telling in terms of the process, as we will see how closely aligned the two houses are on the issues. As many elements are in flux at this stage, a more detailed newsletter will be prepared once the Senate releases its draft bill next week.

The US firm is hosting a client webcast on Monday, 6 November at 18:00 (CET). Details are below:

On 27 September 2017, the Trump Administration and Congressional Republican leaders released a nine-page “Unified Framework for Fixing Our Broken Tax Code” (the “Framework”). The Framework statement is the latest product of tax reform discussions and calls for a 20% corporate tax rate, a new 25% rate for certain pass-through business income, and international reforms that include a territorial tax system and a one-time mandatory repatriation tax.

The Framework calls for the House and Senate tax committees to provide specific details of tax reform legislation and resolve many open issues, including effective dates for the proposals. Administration officials and Republican Congressional leaders say their goal is to enact tax reform in 2017.

EU direct tax law is a fast developing area. This presents taxpayers, in particular groups and multinational corporations that have an EU or European Economic Area (EEA) presence, with various challenges.

We are delighted to inform you that the 2017/2018 edition of PwC’s Worldwide Tax Summaries on Corporate Taxes is now available online.

The new eBook (ePub and iBook formats) can be found at www.pwc.com/taxsummaries/ebook for use on most digital devices (e.g. desktops, laptops, tablets, smartphones). To view an ePub on your device, please ensure you have an app installed that can read the ePub format. Compatible apps should be available in your device’s app market or app store.

It is further worth noting that the fully mobile Worldwide Tax Summaries website, which is kept current throughout the year and covers corporate and individual taxes in over 150 countries, including quick charts, can be found at www.pwc.com/taxsummaries.

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